New rules create controversy over Medicare set-asides

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It’s a rare event when plaintiffs’ personal injury lawyers and defense attorneys agree on something. But in this instance, lawyers on both sides of the fence are scratching their heads over what to do about new Medicare rules.

Robert J. Janssen, a plaintiffs’ lawyer with Stellpflug Law SC in De Pere, spoke at a CLE program about the new rules about a year ago. The audience was mostly “glossy-eyed,” he said, and “had a hard time getting their arms around it. It’s the elephant in the room for both plaintiffs’ and defense lawyers, because no one’s 100 percent sure of what the requirements are.”

The rules require insurance companies to report information about lawsuit settlements to Medicare. They took effect on Jan. 1, and the debate is over whether lawyers should be creating trusts akin to Medicare set-asides in personal injury settlements to protect Medicare’s secondary-payer interest for future medical expenses.

Liability insurers, including self-insurers, must track certain information about Medicare-eligible plaintiffs’ claims. Insurers will begin submitting their reporting to Medicare on April 1. That date was delayed from July 1, 2009 to allow more time for testing.

The new reporting requirements, passed as part of the Medicare, Medicaid and SCHIP Extension Act of 2007, require insurance companies to provide information on settlements, including the name, address and phone number of the plaintiff and his or her attorney.

The reporting requirements now give Medicare a way to track settlement payments that some attorneys believe is intended to enforce secondary-payer rights against future medical payments, not just past payments. They predict official Medicare set-asides (MSAs), à la workers comp set-asides, are just around the corner.

“The prudent course of action is to keep Medicare’s interest protected by creating a bank account for accident related, future medical bills that would typically be paid by Medicare,” said Janssen. “This would be the case even though no formal Medicare set-aside is in place.”

He has already assisted his clients in creating such bank accounts, although “it’s hard to determine what that sum should be; some people are using MSA brokers, to create the MSA trust or at least help decide how much to put away.”

But Grace M. Kulkoski, a defense lawyer with the Madison office of Peterson, Johnson & Murray SC, believes that the hype about potential mandatory MSAs in liability cases is just that — hype.

Kulkoski is relying upon statements made by the Centers for Medicare and Medicaid Services during its townhall teleconferences as authority against a per se MSA requirement.

“The requirement is that Medicare’s interests are protected in settlement. That does not mean ‘You need to do an MSA.’ Even if we all did MSAs as part of our settlements, CMS does not have a formal review process in place to approve or deny the amounts anyway.”

More questions than answers

Regardless of their positions on MSAs, attorneys agree that many questions remain.

We all realize Medicare’s interests need to be protected.” Kulkoski said, “The problem I see now is, when are they going to enforce that requirement and against whom?”

She said that insurance companies likely all know by now that they have certain reporting requirements, but need a more concrete idea of what is being required.

Kulkoski noted that defense lawyers are doing more investigation up front, asking for authorization to access a plaintiff’s Medicare file and seeking through discovery a plaintiff’s Medicare status and potential eligibility. Plaintiffs are cooperating, by and large.

The real issues surface when it’s time to settle the case.

“It’s not customary to itemize how much of the settlement is going toward past damages versus future damages or pain and suffering; usually people just settle for a dollar amount. It’s easy when a jury fills out a verdict form on damages, but most cases settle before they reach a jury,” Kulkoski said.

Janssen noted that calculating damages in soft-tissue injury cases can be especially difficult. The parties rarely agree. And, even if the jury does answer the question regarding an amount for future care, what if the jury gets it wrong? Can CMS go after a client whose future meds exceed that amount? Moreover, what if the client isn’t able to get prescription drugs at the Medicare reimbursement rate? Can Medicare recover the difference from the plaintiff?

Broad reach

Medicare’s rights as a secondary payer are broad. It can reach back six years and get double damages from anyone who touched the settlement money, including plaintiffs’ and defense lawyers.

From a plaintiff’s perspective, he or she is at risk for Medicare not paying for future medical bills that relate to the injury if Medicare’s interests are not taken into consideration at time of settlement, said Janssen. The plaintiff may then turn around and blame his or her attorney if Medicare claims its interests were not adequately considered.

One approach is for attorneys to include in their settlement breakdown sheet a disclosure that the client has been informed of Medicare’s potential interest in the cost of future medical treatment. However, such a discussion can be complicated if the client doesn’t speak English or is relatively uneducated, said Janssen.

The trial lawyers’ group American Association for Justice and other organizations are working on legislative fixes or clarifications, said Janssen.

In Kulkoski’s view, Medicare should have the same rights as any other secondary payer.

As for Janssen, he’s not sure whether the new rules are wise public policy. No one likes the idea of someone getting a windfall at the government’s expense, he noted, but should the government be able to create new liability traps for injured people and their lawyers, simply because the law is so muddled?